Prompt blog #10 Recognizing Truth

I found a report from the NYT told readers that:

"Beijing has few options other than to continue to purchase United States Treasury bonds, Chinese officials are clearly concerned that China’s substantial holdings of American debt, worth at least $1.1 trillion, is being devalued."

         Based the knowledge which I learnt from the EC 202 and the information I searched online, I known that the NYT misrepresents China’s options and Accounting Identities.

         Both parts of the information which I copy above are wrong. Beijing has choice to stop buying dollars from its exporters. The reason that the government accumulates dollars and other foreign currencies is that it buys the currency from the companies who are exporting to United States and other countries.

         Beijing has choice not to buy the currency. This knowledge is associate with the knowledge I post before. If Beijing stop buying the currency, this would force exporters to sell their dollars in international currency markets which would increase the exchange rate – lower the value of the dollar. And this would help to make the international trade become more balance between the United States and other countries. “This is adjustment process that is supposed to take place in a system of flexible exchange rates.”

         The second part of the statement which make me confused is that “”Chinese officials are clearly concerned that China’s substantial holdings of American debt ... is being devalued." Reporter thought this is wrong is because Chinese officials should know that it will be devalued. “The only plausible route through which the trade deficit in the United States will be brought into balance is through a large reduction in the value of the dollar.”(Para. 4) So this is mean that everyone who has taken an intro economics class should know this, so China’s top economic officials must understand this fact. So they will make clever judgement that maintain their export market in United States is worth the expected loss on their dollar holding.

         The reason I shared this news is because it is very close to the knowledge which I took in the class. However, there second part is still some part of this is difficult for me to understand. Wish I would have deep understanding about this news after the end of this semester.

Citation:

http://cepr.net/blogs/beat-the-press/the-nyt-misrepresents-chinas-options-and-accounting-identities